Peso flirts with record lows anew

The Philippines peso again weakened past the 57:$1 threshold, closing at 57.11:$1 on Wednesday, as financial markets here and abroad felt the impact of higher-than-expected inflation in the United States.

Earlier this month, the peso hit new all-time weakest levels for five trading days in a row to as deep as 57.18:$1 on Sept. 8.

Following that, the local currency strengthened back to the 56:$1 levels to as strong as 56.77:$1 on Sept. 13.

Yesterday, the peso lost 34 centavos to the US dollar as the latest inflation reading in the United States—at 8.3 percent for August—heightened fears of a looming recession and stoked expectations that the US Federal Reserve would continue to raise interest rates aggressively.

Since normalizing monetary policy earlier this year from nil to 0.25 percent, the US Fed has raised rates to 2.25 percent to 2.5 percent.

ING Bank said in a commentary the latest inflation reading recalls the early 1980s experience with Paul Volcker as chair of the American central bank.

“To put the inflation genie back in the bottle, Volcker took policy rates to 15 percent and was prepared to accept recession as collateral damage,” the bank said.

“No one in the market thinks the Fed funds policy rate is going above 10 percent anytime soon, but yesterday’s inflation release did see the terminal Fed policy rate repriced to 4.3 percent from 4 percent,” ING Bank added.

According to the Asian Development bank, over the past three months when the peso started wilting fast—after breaching 53:$1 in mid-June—the peso-denominated government bond yield curve flattened as yields for short-dated tenors rose faster than those for longer-dated maturities declined.